Crowdfunding is a method that enables business owners to raise money, without asking one investor to invest a lot of money, but whereby many investors contribute a small amount of money. With the help of crowdfunding websites, business owners utilize the power of social media platforms such as Facebook or Twitter to market their projects directly to a broader audience of interested investors.
Real estate investors have now adopted this method of raising funds as an alternative to a traditional means of financing investments. For example, large developers are making use of crowdfunding platforms to lobby investments from groups of accredited investors, while small business owners or startup businesses have launched campaigns to help them raise funds for smaller investment deals.
Benefits of Crowdfunding for Real Estate
Irrespective of your status in the real estate industry, it can be a challenge to lock down the essential financing to fund a deal. With the advent of real estate crowdfunding in the real estate sector, most investors have taken the full advantage of crowdfunding as the best alternative to funding their deals. Moreover, crowdfunding is associated with several notable benefits, such as:
- Increasing the funding options while growing your investor network.
- It doubles as a tool of promoting your business through direct marketing through crowdfunding.
- Saves time and money by with its user-friendly investment platform.
- Access to valuable feedback from the online community to address any business flaws.
Types of Crowdfunding
Real estate crowdfunding essentially has two different options, namely: Equity Investments and Debt Investing.
Equity Investments: This is the route that most crowdfunding investors take, mostly because it offers higher returns than debt investing. It gives investors an equity stake in either residential or commercial property while turning them into shareholders effectively.
Debt investment means the investor is the lender to the property owner. The investor receives a fixed return based on the interest rate of the owner’s mortgage loan, and the amount invested. Payments are generally given every month or quarter. Moreover, the investor will have priority during property payout.
Should you invest in real estate crowdfunding?
Real estate crowdfunding makes it easy to invest little amounts and potentially get an exciting return. However, investing in real estate is innately risky, and crowdfunding tends to be a brand new concept. Real estate crowdfunding has become a rising trend in the investing industry. If utilized in the right way, it can benefit both the investors and their investments. It is possible that crowdfunding might be the key to a new form of a successful venture.